Hoover points out that fuel prices aren't historically high when inflation is taken into consideration and that the recent jump represents a snapback from the lows of 1998 and 1999. "Nobody complained about that because it was money in their pockets," he observes.

Hoover divides his portfolio into six components: major integrated companies, pipelines and utilities, refiners, natural-resources stocks, and his two favorites: independent producers and oil-services outfits.

Hoover doesn't believe crude will stay at current prices for long. "I think it's in everybody's interest to get oil back down in the mid-20s," he maintains. It should be better for the economy, better for consumers, and possibly even for OPEC, which might face slowing consumption if oil remains so expensive. "The stocks don't reflect $28 oil because investors don't think that's a sustainable price."

He thinks oil will settle into the mid-20s this year, $23 a barrel next year and $20 in 2002. Not to worry, however; those prices are above the commodity's historic $15-$20 trading range, and most oil companies can make a nice profit at anything above $18.

As for natural gas, it's found an unlikely ally: the Internet. The proliferation of personal computers has boosted households' demand for energy. And many new electricity plants are themselves powered by natural gas.

The fund's performance has been boosted by Hoover's big stake in energy stocks, which account for 97% of Excelsior Energy & Natural Resources' holdings. Hoover favors these issues because he's convinced OPEC has enough global clout to ensure that supply and demand remain in a decent balance. In contrast, other natural-resources sectors, such as forest products or precious metals, don't have a comparable producers' group.

An emphasis on energy stocks has helped the Excelsior fund climb 27.49% this year, ranking it in the top quarter of its peers. The fund has returned 11.48% annually for the past three years, vaulting it to the top 10% of its group.

In selecting stocks, Hoover looks for companies with smart management, strong franchises and a penchant for making opportunistic acquisitions. Several of his favorites were bought when crude traded around $11 a barrel during the oil recession of 1998-99. One such company is
Exxon Mobil
, the massive integrated outfit created in 1999 when Exxon merged with Mobil. Hoover likes the company's 13% return on equity -- the highest of any oil major -- which he expects to eventually move up another four points. He also likes the energy behemoth's diversification across many different parts of its business.

Because Exxon Mobil does so many things, from drilling to refining to selling, it's less likely to be battered by changes in petroleum prices. The company refines 2.3 barrels for every one it drills, and sells three barrels of refined product for each barrel of crude it discovers. That means that falling prices actually can help Exxon Mobil. "It's a holding that does well in good and bad markets," Hoover says. "It's kind of an anchor."

Hoover also likes Exxon Mobil's strong record of raising dividends, as well as its share-repurchase program. The company buys back 2%-3% of its shares each year, and Hoover is expecting an announcement of another program this month. Exxon Mobil is also expecting 3% production growth, compared with 1%-2% for other big energy companies.

Hoover is delighted that the cost saving from the merger of Exxon and Mobil is now expected to be $4.6 billion, up from an earlier estimate of $3.8 billion and an initial forecast of $2.8 billion. "That is vintage Exxon," the fund chief beams. "They always want to underpromise and overdeliver." Hoover expects Exxon Mobil to deliver earnings of $4.15 a share this year. Attaching a market multiple to those profits would push the stock price to $104. It recently traded around 82.

Another Hoover favorite is
Anadarko Petroleum
, considered by many industry analysts to be one of the best independent producers around.

Hoover views Anadarko as essentially a play on a shortage of natural gas. That fuel historically sells for about $2 per thousand cubic feet, but now trades at about $4.30. Hoover thinks natural-gas prices will average about $3 per mcf next year.

In the 1998-99 petroleum-industry recession, the number of rigs searching for natural gas -- often a by-product of oil drilling -- dropped, while demand for that fuel rose 2.5% annually. "We have to drill our way out of the natural-gas situation," Hoover says, and no firm is better suited for that than Anadarko.

Of particular interest to Hoover is some 7.9 million acres of Rocky Mountain land that the company gained drilling rights to when it acquired Union Pacific Resources, parent of the Union Pacific Railroad. The tract figures to be rich in natural gas.

In fact, Hoover expects Anadarko's natural-gas output to rise 10%-12% annually for the next several years, which would be two to three times the industry's typical exploration production rate.

A major advantage: Because Anadarko was one of the few drillers that didn't lay off personnel in the tough years, it's stocked with experienced managers and engineers.

Hoover expects Anadarko to generate $10 a share in cash flow next year. Valuing the firm at 7.5 times cash flow would make it worth $75 a share; recently, the stock has been trading around 55.

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